Report Shows L.v.'s Minority Mortgage Gap

June 07, 1992|by CONSTANCE WALKER, The Morning Call

There is no controversy here.

There is no outcry of widespread, intentional discrimination.

But there also is no dispute over the mortgage gap between whites and minorities in the Lehigh Valley, which became evident when 1990 Home Mortgage Disclosure Act reports were made public last fall: Lenders reject minority loan applicants at least twice as often as white applicants, both locally and nationally.

The sobering results made it impossible for lending institutions to ignore the discrepancies in lending patterns.

But there is no hue and cry in the Valley because the problem starts even before the application has a chance to be reviewed.

A study of 100 financial institutions taking mortgage applications from within the Allentown-Bethlehem-Easton area showed that local lenders' biggest fault is ignoring the minority and low-income segment of the population, thus re-enforcing a minority's limited access to the credit system.

"Rejection rates are not the issue in the Lehigh Valley; lack of minority and low-income applications is," said Alan Jennings, executive director of Community Action Committee for the Lehigh Valley. "We are not doing an effective job of reaching that part of the community, of getting them into the banks."

The CACLV is the area's leading advocate for affordable housing.

The Home Mortgage Disclosure Act itself does not require that institutions lend to a particular geographic location or market certain home loans. But the numbers reported become pivotal when a lender's community reinvestment activity is reviewed.

The Community Reinvestment Act of 1977 requires depository institutions to help meet the credit needs of their communities and that activity can determine if a lender is granted approval to merge or expand.

Area bankers readily agreed with Jennings and were quick to cite membership in community organizations, newly instituted programs and well-intentioned plans to generate applications from minorities and low-income mortgage seekers.

One common reason commercial bankers gave for low minority-application rates was that mortgage companies are taking care of that need.

Mortgage companies specialize in home mortgages and offer government programs such as Federal Housing Administration, Veterans Administration and Pennsylvania Housing Finance Authority loans, which are all designed help low- to moderate-income borrowers. As a result, residential mortgages usually do not dominate a commercial bank's loan portfolio and few offer government loan programs that would attract minorities and low-income applicants.

Bob Barrett of American Home Funding agreed: "It's a valid supposition; banks seldom get down into the trenches. Commercial banks are not in the FHA market and that's where minorities and low-income borrowers get their loans. If you don't have FHA, forget it."

And since many mortgage applicants are referred to an institution by a real estate agent, and the agent wants to send the applicant to the place he or she will most likely get a loan, the institutions with government programs will get more of the minority and low-income applicants, bankers said.

"We've always targeted the middle- to upper-income borrowers, not the lower-income borrowers. Now we are playing catch-up with the mortgage companies," said Michael Keyes, vice president and production manager of Bancorp Mortgage Inc., the centralized mortgage operation for Lehigh Valley Bank and its affiliates.

"In 1990, we didn't have the products and the programs to attract those customers," he said. Like other local banks, Bancorp Mortgage Inc. is trying to get federal and state approval to offer various government mortgage programs.

"We know there are lower-income and minorities buying homes in the Lehigh Valley, they just aren't coming to us," Keyes said.

The 1990 HMDA data is the first to include mortgage company activities. And although their statistics appear more representative of population than those of commercial banks, it is clear that minorities are not finding everything they need at mortgage companies.

Besides, Jennings said, no matter what other institutions are doing, banks have a responsibility -- morally and legally -- to serve their entire market, since they collect deposits from anyone, regardless of race or income level, and receive federal help in the form of discount rates and bailouts.

"In terms of market share, commercial banks haven't been big players in the home mortgage market, so it's valid to argue that we don't have a lot of mortgage applications," said Ray de Quintal, vice president of First Valley Bank of Bethlehem. "But of the ones we have, they should mirror the population makeup.

"I'm not convinced that minorities who want a house are able to find the avenue to get one," he said.

However, de Quintal also points out that HMDA reporting procedures could account for the numbers looking worse than they really are.